It would be impossible to blame Detroit’s decades-long decline on a single factor, but if one were to make a list, defined pension obligations to workers would be somewhere very near the top. Thanks in large part to the unionization of America’s auto industry, Detroit has groaned under the weight of crushing pension obligations since time immemorial. And, according to a new report by the Goveernment Accountability Office [full report in PDF format available here], last year’s bailout of GM and Chrysler has not eliminated the existential threat that these obligations pose to the industry. In fact, the taxpayer’s “investment” in GM and Chrysler appears only to have exposed the public to even an greater risk of catastrophic pension plan failure.

The underlying problem is not even that GM and Chrysler continue to shoulder an unsustainable load of pension obligations, it’s that the bailout itself has created no guarantee that GM and Chrysler will become profitable enough to shoulder the obligations. As the report’s conclusion notes:

Treasury’s substantial investment and other assistance, as well as loans from the Canadian government and concessions from nearly every stakeholder, including the unions, have made it possible for Chrysler and GM to stabilize and survive years of declining market share and the deepest recession since the Great Depression. However, because of the ongoing challenges facing the auto industry—including the still recovering economy and weak demand for new vehicles—the ultimate impact that the assistance will have on the companies’ profitability and long-term viability remains uncertain. This, too, is the case for the companies’ pensions. The companies’ ability to make the large contributions that would be required based on current projections is mostly dependent on their profitability.

Though the Treasury’s auto team believes that both GM and Chrysler are able to achieve break-even performance in the short- to medium-term, they point out that such a performance will require a larger turnaround in the economy and demand for automobiles. What goes largely unsaid is that demand for GM and Chrysler-built vehicles in specific must recover before these companies are able to face their looming pension obligations, and that 2010 sales to date indicate that Chrysler is certainly behind the curve for achieving break-even volumes. Whether GM is approaching a break-even performance will become clear later today, when the firm reports its first post-bankruptcy, GAAP-approved earnings.

But had the auto bailout actually made progress on GM and Chrysler’s obligation load, this pressure for short-term results would be less pressing than it is. Unfortunately, because of the size of these obligations, a government bailout of Detroit’s pension obligations could have nearly doubled the rescue’s $81b pricetag. According to the GAO:

PBGC estimated its exposure for unfunded guaranteed benefits across the sector to be about $42 billion as of January 31, 2009, and the exposure for plan participants for unfunded nonguaranteed benefits to be about $35 billion.

Ironically, pre-bailout restructuring and attrition efforts by GM and Chrysler have actually worsened their pension obligation pictures. Though cutting workers and slimming down overcapacity was necessary for GM and Chrysler to even have a shot at medium- to long-term profitability, the fact that the bailout babies made these cuts at a time when it was starved for cash meant that they actually raided their pension funds for cash buyouts to workers.

GM began its downsizing even before its TARP-related restructuring efforts reduced the number of its North American brands from eight to four. According to a GM news release, approximately 66,000 U.S. hourly workers left the company under a special attrition program between 2006 and 2009. Often the lump-sum payments and buyouts offered by these programs were paid from company assets, but when these benefits are paid from pension assets, there can be an impact on the plan’s financial status. GM noted that the attrition programs implemented between 2006 and 2009 contributed to an increase of estimated plan obligations during this period and—along with other factors, such as discount rate changes— played a role in the recent increase in GM’s pension liabilities

Similarly, Chrysler’s downsizing efforts also predate TARP… Due in part to these programs, over the past few years, Chrysler’s pension liabilities have fluctuated while plan assets have been declining. For example, Chrysler’s UAW plan reported a $900 million increase in liabilities from 2007 to 2008, and the plan’s 2008 valuation report noted that the cost of special termination benefits during 2008 were nearly $390 million. Total liabilities for the Chrysler Pension Plan increased by a smaller margin overall from 2007 to 2008, but the plan’s 2008 valuation report noted that nearly $195 million in additional costs were being recorded due to special early retirements, added service costs, and curtailment loss.

In addition, GM’s jiggery-pokery with Delphi’s pension obligations (first spinning its own obligations off into its once-captive supplier, then re-assuming some last summer when Delphi struggled to emerge from bankruptcy) have added $2.1b to The General’s pension deficit. In visual terms, the impact of these “slimming” efforts looks something like this:

In both cases, it doesn’t take a financial genius to understand the scope of the problem. For an even simpler understanding of Detroit’s pension problem, we must look to GM and Chrysler’s estimates of future contributions required to maintain minimum funding levels for its pension plans, as required under law. Both bailed-out automakers are currently above minimum levels, however starting in 2013, large contributions are expected to be needed.

As of October 1, 2008, GM had about $36 billion of credit balance in its hourly plan and about $10 billion in its salaried plan. However, once these credit balances are exhausted, GM projects that the contributions needed to meet its defined benefit plan funding requirements will total about $12.3 billion for the years 2013 and 2014, and additional contributions may be required thereafter. In its 2008 year-end report, GM noted that due to significant declines in financial markets and deterioration in the value of its plans’ assets, as well as the coverage of additional retirees, including Delphi employees, it may need to make significant contributions to its U.S. plans in 2013 and beyond.

That’s $5.9b in 2013, and $6.4b in 2014, a significant cost to be incurred in such a short time, given GM’s current inability to earn a profit. Chrysler, meanwhile faces smaller payments over the short term, of $400m in 2010 and $40m in 2012, but payments to maintain minimum funding levels will increase to $930m in 2013 and $1.25b in 2014.

Worst of all, this entire mess is playing out against the backdrop of a larger crisis in the US government’s pension guarantee system. As of last September, the Pension Benefit Guarantee Corporation had an accumulated deficit of a staggering $22b, largely due to the assumption of of pension obligations in the manufacturing section. Nearly half of that deficit has been accumulated since September 2008, and another $14b of unfunded obligations currently hang in the balance from auto supplier firms alone. Furthermore,

Each year, PBGC assesses its exposure to losses from underfunded pension plans sponsored by financially weak companies… At the end of fiscal year 2009, PBGC estimated that its exposure from reasonably possible terminations was approximately $168 billion, up from $47 billion a year earlier.63 A significant part of this increase was due to the dramatic increase in exposure related to manufacturing, which PBGC attributed primarily to changes in the auto industry

In short, if GM or Chrysler fail to make their minimum payments, and default on their obligations, an already-staggering PBGC could collapse into complete insolvency.

This intense pressure on the PBGC combined with continued weakness in the auto sector puts worker benefits (particularly for high earners and those nearing retirement) into jeopardy, without a functioning federal safety net. As suppliers continue to fail, these obligations and risks will continue to mount, all of which will hurt GM and Chrysler’s chances at a successful IPO, and force the treasury to balance the government’s pension guarantee problems against the financial health of the two automakers it hopes to shortly cash out of. That, according to the report, is a recipe for “tensions” and “conflict” for everyone involved in the auto bailout. The GAO concludes:

The federal government and its institutions, the automakers, and the unions have all made a concerted effort to ensure that GM and Chrysler do not fail. But, should the automakers not return to profitability, interests may no longer be aligned. Treasury officials said that they will consider all commercial options for disposing of Treasury’s equity, including liquidation; this would likely mean terminating the companies’ pension plans, and allocating remaining company assets. In such circumstances, it would be difficult for Treasury to make any decisions that would trade off the value of its investment against the expense of the pension funds, potentially exposing the government either to loss of its TARP investment or to significant worsening of PBGC’s financial condition. This is not a choice the government wants to face, but this risk and its attendant challenges remain real.

62 Comments on “GAO: Pension Plans Will Kill Detroit. Again....”

Worst of all, this entire mess is playing out against the backdrop of a larger crisis in the US government’s pension guarantee system

I made this point in another post; I’ll make it again here. I’m not sure about the US, but in Canada a large part of the problem comes from governments taking money out of the system in good times for politically expedient reasons.

During boom times, things like health, unemployment insurance and pension guarantees should run a surplus in expectation of need. When things start to sour, that cumulative surplus should be tapped. These programs should have been funded, by both business and government, when they were making money, not now when they’re up against the wall.

What should not happen is that the surpluses be used to fund tax cuts or other discretionary programs. Cutting taxes during good times to buy votes is a damn fool idea anyway because it leaves you precious few options when it comes to cutting taxes and stimulating growth in bad times.

This is what we get when we run governments like a (bad) business and succumb to short-term, populist concerns instead of being progressive, proactive and strategic.

I would agree with you if the enormous sums of tax money confiscated from Canadians mostly went to productive uses. Sadly, that is not the case. Knowledgeable authorities place the sheer, utter, unforgivable waste at 30-percent. Some estimates are upwards of 50-percent. Give the government a buck and it will spend 75-cents and waste 50-cents creating a 25-cent deficit.

Canadian governments are monopoly “employment enterprises” maintaining 3,650,000 civil servants, more than one in five working Canadians. The militant civil service unions have successfully extorted premium wages, benefits and pensions, slothful working conditions, protection from the consequences of poor performance and prevented the introduction of labor saving procedures and technologies. They zealously guard current entitlements and stridently campaign for more notwithstanding some estimates claim civil service compensation exceeds the private sector for similar work by over 40-percent. The higher costs and poor service are unmercifully passed on to taxpayers resulting in even higher taxes!

The Canada Revenue Agency (CRA) collects the taxes that keep the merry go round running. The CRA employs 36,000 civil servants. The United States Internal Revenue Service with 10 times Canada’s population employs 92,000 civil servants!

“The unions zealously guard current entitlements and stridently campaign for even more notwithstanding some estimates claim they exceed private sector compensation for similar work by over 40-percent”

This isn’t really true in most cases. Private sector management and in-demand services often make more—to the tune of an order of magnitude in some cases—than the public sector and most equivalent professions in both track pretty much uniformly. In good times, the private sector will usually exceed public sector compensation.

The public sector, if anything, shows much less stratification: it’s very compressed in it’s wage.

The private sector, on the other hand, puts the screw to the low-end of the earning spectrum even in good times. I’d be interested to know if the millions paid to private-sector executives, directors and VPs balances out fair living wage paid to public-sector clerical and services staff? You don’t often hear “Why is it that public-sector management is so underpaid versus the private sector?”, do you?

The Canada Revenue Agency (CRA) collects the taxes that keep the merry go round running. The CRA employs 36,000 civil servants. The United States Internal Revenue Service with 10 times Canada’s population employs 92,000 civil servants!

That’s because of stepped costs, and is common in many industries and services. The number of people you need to service a given population does not necessarily directly scale linearly with the population.

exactly man. you are dead on. Ronald Ray-gun dismantled all the regulations that were supposed to keep the companies from bankrupting their pensions. So when GM and Chrysler should have been making huge returns in the 1990s on their pension fund to support retirees, they were using those gains to offset loses and general expenses in other areas of the companies.
Why is a contract between two rich people binding yet when it involves average joes, the contract can be ripped to shreds?

Cutting taxes during good times is what John Kennedy did and the economy grew in response, resulting in even greater gov’t revenues.

Private sector management and in-demand services often make more—to the tune of an order of magnitude in some cases—than the public sector and most equivalent professions in both track pretty much uniformly. In good times, the private sector will usually exceed public sector compensation.

Yes, let us bow in gratitude to those hard-working, selfless government workers who toil in countless ways to make our lives better.

Yeah, right.

Perhaps public employees are not well compensated in Canada, but in the US federal civilian non-military public employees get paid (I refuse to say “earn”), on average, about twice in salary and benefits that private sector employees earn. Moving from the averages to actual positions, some gov’t lawyers make less than what they’d make in the private sector, but other than lawyers and a couple of job categories, federal employees are much better paid than employees in the private sector. Their benefit packages are even more generous, with benefits that are simply not available in the private sector. A janitor working for a federal agency makes about double what a janitor does in the real economy.

While state, county and local public employees have salaries more in line with what people earn in the private sector, they typically average about 40% higher compensation when it comes to benefits.

Public employees should not be allowed, under law, to form labor unions. It’s an invitation to corruption and rent seeking. I’m not even sure they should have the right to vote while they’re getting a gov’t paycheck.

Cutting taxes during good times is what John Kennedy did and the economy grew in response, resulting in even greater gov’t revenues.

Being in office during America’s post-war industrial golden age might have had something to do with that. The 1960s were a manifestly different time than today; the opportunity for growth flat isn’t there now, tax or no tax. It’s similar to the situation that Japan found itself in during the 1980s, and China does now. Kennedy could have sat on his hands and still enjoyed GDP growth we can only dream of now.

For example, in the 1960s, it was actually possible for entry-level blue-collar workers to earn a very good living wage and had far greater spending power and far lower expenses. Oh, and the earnings spread from poorest to richest was a lot narrower.

Oh, taxes, especially on the upper income brackets, were higher.

I’d love to duplicate the conditions under Kennedy. For one, it would mean that most of the middle class wouldn’t have to hock itself up to it’s eyeballs to buy a house. For another, it would mean the richest members of society would simply be “really well off” instead of “obscenely wealthy”.

I did say that you can cut taxes. I didn’t say that cutting them was always a good thing. I also said that cutting them for political expediency’s sake is not a good idea, not when government will need that revenue to avoid racking up deficits when things go bad.

That’s a simplistic view of Canadian politics-minority governments are the biggest problem.

Most of the current deficit was born out of survival instincts on behalf of the current government.It’s a crazy mish mosh of socialistic meandering and whims and it was largely unnecessary.

Surpluses ARE a bad idea-cutting taxes is a good idea,because a good government is lean and mean not bloated on tax dollars.

I won’t even get into equalization payments that encourage regions of Canada to underperform at the expense of other regions-primarily Alberta but I can tell you this-punish the engine of the country (the oil industry)by raising taxes and you’ll turn the whole country into an economic desert.

I am so sick and tired of reading about how costs are killing GM when in fact it is their complete lack of knowing how to sell cars that is the bottom line cause. were GM to sell another million or two more vehicles these problems would disappear, but the management, past and present, has no clue how to move the metal and still to this day continues the absolutely insane marketing that drove the company into bankruptcy. they are doomed but it’s from the lack of leadership, not the workers or their associated expense.

The point of the article is that the burden of retirees continues to wreak havoc on GM’s ability to price their products at a rate that yields a profit and is a price consumers will pay. In a later article, Eddie noted a $54B cost of sales for Q4, and I suspect that’s what you’re criticizing. But there is no one silver bullet that will fix GM. If the taxpayers are going to get repaid for their so called loan, everyone at GM will have to sacrifice.. including retirees who get outstanding benefits.

Your quote about GM selling another 1-2 million vehicles made me laugh. The reason that GM won’t and can’t is that consumers continue to vote with their wallets. More and more people simply don’t want GM products.

This is sort of a “blind men and the elephant” situation where everyone sees the problem from their own narrow perspective and can’t see the big picture.

Did you ever stop to ask WHY GM can’t move the metal? Is it possibly because they have alienated large segments of their customer base over the last 30+ years with inferior products?

And where did these inferior products come from? From an adversarial model of management-labor relations. From a high cost structure so that vehicles had to be “decontented” to pay for pensions, health care, etc. – huge costs that competitors don’t have, so that GM had to cut corners to match price points.

Putting aside lost volume, note also that GM can’t (especially after paying incentives) command the same price for its vehicles as the imports. If a Malibu could command the same price out the door as a comparably equipped Accord, there would also be billions more in revenue. But consumers are not dumb and discount the GM vehicle for inferior quality, durability and features. In some cases, the discount may be a penalty for past sins and not reflect current reality, but GM has made this bed and now they have to lie in it.

“This is what we get when we run governments like a (bad) business and succumb to short-term, populist concerns instead of being progressive, proactive and strategic.”

Wrong. Tax cuts do not deplete government reserves. They never have. Spending is what depletes government reserves. It’s no different than raiding your 401k to buy a new boat. Then you cry poor when you don’t have enough money in retirement. The US has done this for years, raiding SSN for money, spending MORE in boom times (even when brought on by tax cuts) than the rate of INCREASED revenues. That’s no different than you getting $1000 dollar raise and going out and spending $2000 on a cruise vacation. Your underwater by a thousand, but it feels good. Exactly the same scenario happened in the 80’s when revenues doubled but the government spent more. How much is enough? Without a balanced budget amendment in the Constitution (which most if not all the states have), it will NEVER be enough.

Bingo. Tax cuts increase government revenues AND allows more money to stay in the economy for investment. If you’d like an example, look up the record of that ultra right wing, ultra conservative president JFK and watch a few of his speeches where he talked about his economic policy of reducing the marginal tax rates and how that will increase government revenue.

It’s always about how you incentivize people that will determine their behavior. This isn’t rocket science.

Edward, This pension funding problem isn’t exclusive to the D3 or even the Fed Gov’t. Many states are having this problem as well. Our politician’s inability to say no, and many in corporate America rolling over and playing dead when negotiating with emboldened unions is playing a significant part in the bankrupting of America. Why should a union machinist make 20-40% above market rate for his skill set?

Same thing goes for public owned utilities. Why should a DBA working for a municipally owned utility make 30% more than his peers in the private sector? All this is costing the taxpayers billions.

What’s happening at GM and is killing that company is happening in many other places.

By the way, JFK’s Treasury Department predicted that revenues to the treasury would decrease after his proposed tax cuts took effect. The opposite occurred. Maybe he was an “ultra rightwinger” after all: It was during his administration that military spending reached it’s peak as percentage of GDP (post WWII of course).

One, tax cuts do reduce government revenue. Taxes more or less constitute how government raises funds to start with. Go ahead and cut taxes to zero and watch what happens to the services government needs to provide.

You can reduce taxes in the hope of increasing revenue by productivity gains and incentive to do business, but it’s a risk that doesn’t uniformly pay off. There’s no hard and fast rule that says cutting taxes will always (or usually) generate revenue. It certainly doesn’t help the lower end of the economic scale who aren’t taxed much to start with, and it’s these people who a) drive consumer spending and b) lean much more heavily on stimulus and the social safety net when things go bad.

Cutting the GST, for example, removed billions of dollars from Canada’s coffers, resulting in their running a deficit just in time for a recession and left the government with the unpalatable proposition of a) going heavily into debt and b) having to claw those tax revenues back in all sorts of backhanded and, likely, more administratively costly ways.

Economic downturns happen: anyone who can read an Andex chart should be able to see that, every 10-13 years, something in the machine goes “ping”. That government and business are showing themselves increasingly incapable of planning for these eventualities is not heartening.

Same thing goes for public owned utilities. Why should a DBA working for a municipally owned utility make 30% more than his peers in the private sector? All this is costing the taxpayers billions.

In good times, private sector employees—especially in it’s upper echelons—make much, much more money than than their public sector equivalents and on average they make more in general. The difference is that the public sector employees often benefit from greater stability, and they don’t screw the front-line workers nearly as hard.

The idea that public sector and/or union workers are grossly overpaid makes for good copy, but it isn’t uniformly true and is much more complex than suggested. It certainly rings more than a little hollow when the criticisms about union-based costs are coming from captains of industry who make millions in direct compensation and more in fringe benefits while the companies they “lead” bleed millions and front-line staff and shareholders are asked to take haircuts.

The first article only looks at actual pay, so it doesn’t give the full picture. The CNN article notes that benefits for public sector employees are more generous than for their private sector counterparts. That must be taken into account, too, as those benefits cost money. Public sector workers, for example, are more likely to have defined benefit pension plans, which cost a lot more money.

Also note that many state and municipal employees can boost their salaries substantially through the use of overtime, but this not often reflected in measurements of compensation (which usually uses the base salary or base hourly amount).

psharjinian: It certainly rings more than a little hollow when the criticisms about union-based costs are coming from captains of industry who make millions in direct compensation and more in fringe benefits while the companies they “lead” bleed millions and front-line staff and shareholders are asked to take haircuts.

A red herring argument for two reasons. One, those captains of industry aren’t the only ones raising this concern.

Two, they aren’t on the public payroll – at least, not until their companies receive a public bailout. And the people who express concern about the cost of public sector employees aren’t the ones pushing for bailouts of privately held companies.

“…In good times, private sector employees—especially in it’s upper echelons—make much, much more money than than their public sector equivalents and on average they make more in general. The difference is that the public sector employees often benefit from greater stability, and they don’t screw the front-line workers nearly as hard…”

+100 That statement is 100% true. Right now the public sector is enjoying that stability and because it is sort-of their turn in the sun they are a good target. While one could make a good case that unions (in some areas like construction) have gone too far, their very existence arose from the selfish plundering by the fat cat industrialists. The historical record is LOADED with cases of workers being treated worse than dirt. That they don’t exist at the transplants is because the transplants were forced to offer good compensation to keep the union out. Can’t help but wonder had GM’s vehicles remained desirable enough to maintain 50% market share, would providing a pension been so problematic…

“…Also note that many state and municipal employees can boost their salaries substantially through the use of overtime, but this not often reflected in measurements of compensation (which usually uses the base salary or base hourly amount)…”

What is wrong with being paid for your work? Why should anybody have to work for free? For the “privilege” of a job?

goldenhusky: While one could make a good case that unions (in some areas like construction) have gone too far, their very existence arose from the selfish plundering by the fat cat industrialists. The historical record is LOADED with cases of workers being treated worse than dirt.

Except that this is not what is happening TODAY, in the modern American auto industry. Sorry, but I’m not going to mindlessly support unions today because Henry Ford I or one of the Rockefellers mistreated their workers a century ago.

goldenhusky: That they don’t exist at the transplants is because the transplants were forced to offer good compensation to keep the union out.

It’s considerably more complicated than that. The way the transplants manage their plants, which is a key ingredient of their quality and productivity achievements, is simply not compatible with the typical union mindset.

goldenhusky: Can’t help but wonder had GM’s vehicles remained desirable enough to maintain 50% market share, would providing a pension been so problematic…

It probably would not be a problem, but that is not the way things happened. GM and the UAW had to plan and adjust for what really happened, not what they WISHED had happened – just like the rest of us.

goldenhusky: What is wrong with being paid for your work? Why should anybody have to work for free? For the “privilege” of a job?

There is nothing wrong with being paid for work, and I never said that there was.

I merely pointed out that stating a base salary or hourly rate often doesn’t give a true picture of the total compensation enjoyed by workers – in this case, government workers.

Plus, overtime often has less to do with working more than 40 hours a week to get the job done and more to do with unions finding creative ways to pad a paycheck.

I am so sick and tired of reading about how costs are killing GM when in fact it is their complete lack of knowing how to sell cars that is the bottom line cause

This is actually quite true, as former commentator Pch101 was wont to point out: GM’s costs were actually lower than Toyota’s in later years. What was killing them (and still is) is revenue: they can’t seem to sell their product for as much as their competition.

How is it false? If GM’s costs were at or lower than Toyota’s and yet their revenues were lower, how could the problem be cost?

Let me put it this way: GM puts more than three grand on the hood of every car they sell. Toyota usually puts less than half that, until very recently, and they still put just slightly more than two. Worse: GM’s incentives go even higher on their high-margin vehicles; Toyota doesn’t put nearly that kind of cash on the hood of Lexus’ stuff.

Screaming about cost when the real problem is that you can’t convince people to pay decent money for your product amounts, essentially, to passing the buck. It’s certainly more convenient for management to point the finger at front-line staff than to acknowledge their own failure to market, plan or lead.

This has likely changed and quite possibly for the positive given that GM was able to shed some costs and obligations in bankruptcy. Admittedly, though, the past 24 months have been tough all around.

Wagoner et al liked to bang the cost drum because it deflected criticism from their management of the company. They made products they couldn’t sell for a competitive price. They still can’t, given that their incentives are on average $1000 more per car than Toyota and nearly $2000 more than Honda.

The unions aren’t blame-free, but neither are they or the costs they pose the definitive albatross around the company’s neck.

I actually would disagree with Pch101’s stand on this. He addresses difference in the selling price per car, which is true. GM had poor content and more incentives. It is not a surprise someone would pay more for a competitors product. That doesn’t mean that the costs of building the cars doesn’t put GM at a disadvantage. I don’t know if Toyota had more on the payroll or not, but GM sure does have a lot of funding for people who aren’t on the payroll now, retirees. Plus, they paid more per employee than Toyota. All of which helps Toyota’s bottom line in comparison to GM’s.

That being said, simply fixing the legacy costs doesn’t fix the problems at GM. After all, there is still a reason why the transaction price was much higher for Toyota. GM has stated several times that transaction prices are much better for them now, thousands of dollars better. It will be interesting to see how the market rebounds, the IPO, and how both companies do in the future.

Ok, Psarhjinian, what is it? First tax cuts never work, then they don’t work every time? Which one is it? Again, you bs your way through your posts but never cite a single source, you just assume that anything you put down is correct and anyone with half a brain would agree with you. Like I said before go to a political site, there you can spew your crap among your kind.

Government employees do make more than private sector workers, it’s not complicated, they do. And government spending, where does the money coome from? It comes from tsaxpayers, it’s their money taken from them and spent in ways that they have no control over. Again the government takes money and taxpayers are poorer because of it. A leech like you who doesn’t pay taxes has it pretty good. You just have to be careful the handouts don’t stop.

You made my point, 2 links, one a blog from the UK that is unknown and not applicable to the US and the second CNN and CareerBuilder.com. That’s some real sources there. You kind of shot yourself in the foot with the CNN anyway, government salaries were generally higher and the poor babies think they deserve more.

Feel free to read their targets, though I’ll assume you’ll disregard them anyways because you don’t agree with the principle in the first place. That’s fair, you’re entitled to your philosophical baseline.

Thanks for letting me have my misguided philosophical baseline. I’m a conservative/libertarian, the difference between us and the socialist/liberal/totalitarians on here is this: when we screw up it hurts us only. When they screw up in their mad quest to prove that they know everything can control everything, everyone pays the price. They are incapable of learning from history too, they always can do it better than the strongmen before them and they do, each tyrant is more bloodthirsty than the last.

I’m smart enough to know that I don’t have all the answers unlike the fools who follow the god of socialism.

If companies knew decades ago that they were not going to pay out employee pensions, why keep contributing to the pension accounts? These employees took lower pay for their entire careers based on the pensions that were offered.

I say screw Detroit and every company officer that knowingly lied about pensions. In reality, this seems like a potential breach of contract, maybe even a class-actionable situation.

Hopefully prosecutors can find a criminal charge or two and put some of these “business leaders” in jail for at least fraud.

GM and Chrysler are not alone in having underfunded pension plans. How is this situation resolved when smaller, less politically connected firms fail? Seems to me that GM and Chrysler lost their last chance at cutting costs to sustainable levels and they will fail at some point. No big deal for consumers who have many other vehicles to choose from, but the pension obligations will be a big mess.

Regarding tax cuts and revenue, it all depends on the tax rate before and after the tax cut. Cutting capital gains taxes from an insanely high rate of 50% to 20% most likely results in more revenue because the business incentive switches from mostly tax avoidance to mostly just earning a profit. Cutting capital gains taxes from a low tax rate of 10% to an even lower tax rate of 5% probably reduces revenue because doing stupid things to avoid taxes is a non-issue at low tax rates. If the goal of taxes is to simply collect revenue for the government, there is some optimum modeate range of tax rates much less than government takes half and greater than zero.

GM and Chrysler are not alone in having underfunded pension plans. How is this situation resolved when smaller, less politically connected firms fail?

It isn’t, but it’s also (potentially) less economically painful. How many people, and how many towns/cities, have economies dependent not just on the wages paid to current workers but on the pension earnings spent by retirees?

It’s “too big to fail” all over again. What we mean by “too big” isn’t “too important” (and thusly arrogant) but “too painful”.

It is not much less than half but less than 1. Showing examples in which the optimum tax revenue is far above 50% of gross isn’t hard see for example the gas tax in certain European countries which has been above 70% of gross.

ps. I think you are talking of less than 50% if the total economy and even that is debatable.

“In good times, private sector employees—especially in it’s upper echelons—make much, much more money than than their public sector equivalents and on average they make more in general.”

In good times, those working in the private sector are contributing factors to the success of their organizations and deserve to be rewarded. It’s a meritocracy, or is in many cases. C-suite exempted from this generalization. That’s more political or more like government work.

“Go ahead and cut taxes to zero and watch what happens to the services government needs to provide.”

And here’s the rub. Exactly what services does the government NEED to provide? I don’t think the government needs to be the provider of education, as they’re failing miserably at it. Leave that money to individuals and let us choose which schools to send our kids to. Wonder what that would do to school performance?

The government certainly provides services to those of us most in need and should continue to do so, but government largesse has been out of control for decades and won’t be roped in anytime soon. I’m a flat tax fan, but that won’t happen either due to all those with a vested interest in the spaghetti tax code we have now.

The Gov’t should provide for those “in need?” What does the government really provide? Are these serious comments? Is that what is meant by “Bring the tech?” Drive to work today? Thank Uncle Sam for your roads, the safety and cleanliness of your car and the free security to get the fuel at below market cost. Ride mass transit? Thanks again, Unc. Sam. Appreciate the ambulance and fire service too…Food safety, education, product safety, police protection, national security, corrections…the list is endless. Sure, the services may vary in quality, but lets be real. The “free market” is remarkable in many ways but when it comes to providing public services that benefit everybody, free markets fail miserably. Often people say that “government should be run like a business,” but that is not possible. Yes, improving the efficiency of any operation is beneficial, but the goals are diverse. A for profit company is supposed to just that, provide profit. A good government is supposed to provide services. And that costs money.

Of your list of sources, only the USA Today link is remotely non-conservative or Libertarian. And that link is hardly indicates that there is an across-the-board wage differential. Some support your position, others don’t. Some of the jobs aren’t even matches either. Lastly, how about a comparison over 10 years to take into account periods of prosperity. That will skew things big time. Seems to me that what we have here is a serious case of “reverse class envy.”

Speaking generally, comments like referring to somebody who you disagree with as a “leech” has no place on this site.

It seems it’s not just the D3 or other evil “big business” enterprises with pension problems. I’m hearing that there aren’t many adequately funded state/local government pensions, either (not to mention Social Security!)

I’m all good with prosecuting criminal behavior with regard to pension misdeeds in the private sector. Let’s just not forget the same principles apply to our benevolent government leaders, as well. Too bad the market can’t send government the same message it’s sending GM & Chrysler…”Your product is inferior and costs too much!”

Let us bow our heads and reverently hope the status quo remains that all taxpayer-paid bureaucrats, politicians and other parasites continue to receive the pensions I and so many other private sector workers have been unable to obtain and, at increasing rates, will apparently be unable to obtain, and that those pensions remain 100 percent guaranteed and will continuously rise to meet ever-rising costs of living.

“That’s $5.9b in 2013, and $6.4b in 2014, a significant cost to be incurred in such a short time, given GM’s current inability to earn a profit.”

This is telling; first, at $5.9B, that is 236,000 cars at $25k each. Of course that is revenue, assuming GM can hit a 5% profit by then then they need to sell an additional 1.8 million cars to pay that sum. I think I will go out on a limb and say that this will be absolutely crippling.

Second, it is amazing that numbers like that need to be explained as a “significant cost… etc” Thanks to our freespending, irresponsible, and hopelessly shortsighted ways, we are no longer impressed with these numbers.

“Go ahead and cut taxes to zero and watch what happens to the services government needs to provide.”

Of course that’s one experiment the statists will never allow to proceed.

It’s funny. When statist solutions fail, folks like our socialist Canadian friend say that the solution isn’t flawed, they just didn’t take enough money from wealth creators. They always need a bigger boat – they never consider that they shouldn’t be in the shark hunt to begin with.

If those “needs” are really needed, if the gov’t doesn’t provide the services then someone in the private sector will offer those same services for a fee – and they’ll do it with lower overhead costs than a gov’t agency, which has no accountability.

Unlike most countries, the government of the United States is limited by the “enumerated powers” clause of our constitution. If there are no restraints on what a government can do, liberty and freedom are chimeras.

So you’re saying that the United States, prior to the 20th century, was akin to Somalia? We functioned pretty well without an income tax and without compulsory public schools. Public schools have more to do with Dewey inspired indoctrination in progressive politics than they have to do with education.

In the US, funding for education has gone up and up and the results have continued to decline.

FWIW, the average Christian or Jewish parochial school spends significantly less per student than government schools do, and their students have greater academic achievements.

Public schools don’t suck in countries where the system is uniformly funded, cared for and planned.

Americans (and to a lesser degree, Canadians and Australians) really do get the government they expect. If you don’t trust the government and expect them to deliver mediocre service and arrange matters such that any system you implement is compromised and hamstrung, then it’ll damn well fail.

And yet in countries where government is given the tools to do the job right, those same initiatives succeed. Despite being nanny-statists, Europeans have better roads, education and health care. Despite being nanny-statists, Canada has a better banking system.

About the only thing the American people seriously expect their government to be able to do well is maintain a standing army. Interestingly, they do this quite well because the DoD doesn’t need to put up with the kind of self-defeatist, interfering, oh-my-god-it’s-socialism that education, health social security and/or transport do. And this is despite the fact that a government running a military force should scare you in ways that a government running a school a hospital can’t even approach.

Again, the market is good at many things, but these kinds of things are not in that category. Again, visualize the mess that a private army (the word, by the way, is “mercenary”) would be. Why expect privately-managed pensions, roads, health care, utilities or primary education to be much better?

psharjinian: And yet in countries where government is given the tools to do the job right, those same initiatives succeed. Despite being nanny-statists, Europeans have better roads, education and health care.

Sorry, but you are wrong again.

First, let’s dispense with this idea that Europe is one country. It consists of several different countries.

Second, we’ve gone through this several times, and there is no proof that any of the European health care systems are consistently superior to the American system. The World Health Organization (WHO) ratings are largely worthless. They fail to account for differences in how various statistics are measured – infant mortality, for example.

As I’ve explained numerous times, the U.S. gets penalized for being more aggressive in treatment of premature babies, and how “live births” are defined. In Europe, a baby that dies within six hours of birth is listed as a “stillbirth.” In the U.S., a baby that dies one hour after birth is listed as having a one-hour lifespan. This skews the infant mortality statistics.

It also ignores that the U.S. system is better at treating complicated diseases and conditions. Our cancer survival rate is among the best in the world (superior to all European countries), and people are more likely to receive advanced drugs and procedures for serious conditions in the U.S. than they are in other countries.

That is the real test of health care system. Any system can adequately treat a broken limb, the flu or even a kidney stone.

Life span is influenced more by genetic factors and lifestyle choices than the healthcare system. If the U.S. wanted to increase its lifespan figures, it should encourage more high- and moderate-income Asians to move to this country.

Americans are also responsible for the vast array of health care innovations. The top five American hospitals conduct more clinical trials than all of the hospitals in any other developed country.

As for education systems – the two European systems that I know – France and Germany – are very aggressive in “tracking” their students in various curriculums based on test scores. This is possible in countries with relatively homogenous populations. It depends heavily on testing and tracking, which are political dynamite in a racially diverse country like the U.S. (It is becoming more of a problem in France and Germany as they struggle with assimilating increasing numbers of immigrants from the Middle East and Africa.)

Guess what – the U.S. once had an education system that was the envy of the world. Its students were high achievers, too. That’s because the low achievers were largely encouraged to drop out and find a job. Placement in more advanced classes was determined largely by grades and test scores, and if large numbers of minorities were excluded on that basis, too bad. Try that again today and see how it works…

Seems as though what is pulling down U.S. achievement rates are government action (opening up classes to more students, regardless of achievement) and efforts to discourage students from quitting school before graduation. Those have nothing to do with reluctance to fund schools. If anything, the resistance to increased education funding in this country stems from the fact that people realize that more money does not equal more achievement, especially with government often working at cross purposes with those goals.

Also note that our system of colleges and universities are the best in the world, bar none. Most European institutions of higher learning are decidely inferior to their American counterparts. Ironically, this is because the U.S. schools are still selective, while the European schools have tried to be more open – the exact opposite of the approach taken by each region’s respective primary education system.

Also note that one way European countries have lowered their high unemployment rates is by simply paying people to get another degree, so that they are counted as “students” rather than “unemployed.” My cousin in Germany is on her third college degree right now…

As for roads – again, the U.S. has FAR more miles of roads than other European ountries, and the European population density is much less than that of the U.S. There are more miles of road to maintain. Plus, our weather conditions are simply far more severe than they are in most of Europe. If the U.S. had the weather conditions of most of Italy or France, for example, our roads would look pretty good, too. Given these circumstances, it’s a miracle that our roads are as good as they are.

I can recall UAW advocacy ads placed in Newsweek (circa the 1980’s) that stated their belief in very high levels of benefits and job protections, the ending tag line was something like “…and we want to bring these benefits to ALL Americans.”

Now just think if everyone from burger flipper to sales clerk had such benefits…where would all the money come from to fund that?
From tax receipts from the workers themselves?, nah that would be circular money movement.
I guess they wanted it to be taken it from the top 6% of the wealthy. Or maybe they thought it would come from some as yet unforetold huge productivity increases.

Psar: “in the 1960s, it was actually possible for entry-level blue-collar workers to earn a very good living wage”. That golden age was experienced in highly concentrated industries (steel, rubber, chemicals, autos, etc.) that were able to meet union demands for higher wages by passing the cost on to consumers. As for the poor chump in, oh, Montana or New Mexico going out to buy a new Chevy, the new higher price just had to be swallowed. There was no real price competition–not for Detroit, not for the UAW.

But enough exchanging of opinions. Let’s have some facts. What is the actual dollar amount of the pension check currently going to a typical GM/Ford/Chrysler mid-management retiree? What is the pension benefit going to a typical retired GM/F/C assembly line worker? And just for laughs, what is the retirement income of a typical retired Detroit school teacher? Folks who never made more than two or three times minimum wage and are living on $1000 a month from Social Security are eager to know.

“FWIW, the average Christian or Jewish parochial school spends significantly less per student than government schools do, and their students have greater academic achievements.”

In the macro, that still seems to hold.

But, let’s not lose sight of how they do it – they pay teachers rather poorly compared to an equivalent public school. Overhead admin costs are a small fraction of public schools, since much of that functionality is performed by the members of whatever the applicable order is.

Most importantly, when you select your student body from the upper 10% of standardized test takers and/or children of the upper-middle class and above – well, the results are much easier to achieve.

As far as private armies go, we already have one – it’s called Blackwater, err, XE. And it’s getting more dangerous and out of hand every day.

the root of the problem is people don’t like paying taxes and being told what to do, but they also don’t like getting ripped off and not having any protections from corporations and criminals. About tax cuts, I read that to increase consumer spending give tax cuts to the poor(they are more likely to spend) to increase investments and savings give taxes to the rich(they are more likely to save and invest). the government needs to manage its tax cuts better.

the problem with american schools is that it is compulsory and school sports team are seen as a requirement, and heavy emphasis on everyone going to college. some people are NOT meant for college and there is nothing wrong with that. Entrepreneurship has gone down, and it is small business and entrepreneurs that lead to prosperity. Like the saying goes the pilgrims didn’t come to America because they heard IBM is hiring.

My wife worked 19 years for municipal government and I worked 26 years for a large corporation. Her salary was half of mine. In her opinion, that was more than she would have been paid for the same work in the private sector. Her benefits, especially health insurance, were better than mine. Now that we are retired, her municipal pension is 80% of my company pension instead of the 35% one would expect based on earnings and years worked.

In the same city, 50-year-old rank-and-file police officers are retiring with $80k pensions. Their pensions are based on their earnings in the two years immediately preceding retirement as well as on length of service. They game the system by putting in huge amounts of overtime during those final two years. Although the mayor and city council are whining about the pension system being underfunded, neither they nor the police administration are willing to control the excessive overtime.

I’ve got your cop story beat. The town where I live hired a 19 year old kid WHILE HIS FATHER WAS CHIEF OF POLICE. Last year this person turned 44 — 25 years on the job. He promptly put in for retirement. First thing the town was obligated to do was buy out this ripe old man’s unused sick and personal days — some going back 25 years, at his last year salary rate. Lump sum payment of over $200K. Next he got an 88K pension. He pays nothing out of pocket for health care for himself/spouse/domestic partner — no annual deductible, $5 co-pay for doctor visits, and $2 co-pay for prescriptions. This health care plan currently costs about $25K per year. Pension of $88K + $25K health care = $113K per year. Of course he also gets a yearly COLA adjustment. According to the actuarial tables, this man can expect to live to be 78 years old. 78-44= 34 years of collecting this pension. 34X$113K= $3.85 million. It gets better. Heath care continues for this man’s wife after he dies. Women typically out live men of the same age by 10 years or so. This man’s wife is ten years younger, so after he dies, the state can expect to provide his wife with health care for 20 more years, OR A TOTAL OF 54 YEARS. Nice work if you can get it. By comparison, the UAW guys look like complete slackers.

I finally got around the reading the article. GM and Chrysler both have large assets in play that can make money and contribute to the plan. Since we are still pretty low on the economic recovery of the market, the assets will increase in value over time. Hopefully in 3 years we are in much better position today. If the assets increase, GM and Chrysler may owe significantly less or nothing.